After yesterday's 10 per cent fall, Google's share price has risen less than
one per cent as trading reopened in New York. Matt Warman examines the
underlying problems.

The premature release of Google’s financial results wiped $22bn off the value of the search giant on Thursday – a “fat-fingered moment “ meant the numbers were unveiled three and a half hours early, “pending Larry [Page] quote”. Markets saw data that indicates Google’s rise is not as irresistible as it once seemed, unadorned with the mollifying words of the chief executive.

The accident sparked panic, sending shares down 11 per cent, and they remained low yesterday. But even properly handled the numbers would have made uncomfortable reading for investors. The revenue Google derives from each click on its adverts has declined 15 per cent year on year; more people used mobile phones, where it’s harder to squeeze in adverts; and more sites and apps, from Amazon to Spotify, featured their own search engines that bypass Google search altogether.

It’s hard to overstate the scale of a blunder that saw an incomplete press release sent to the markets early, and saw shares suspended after their precipitous fall.

Recent figures show that the now monolithic search giant still pays its engineers more than any other major company in Silicon Valley, but even that investment sees the firm struggling to make the most of its biggest and most conspicuous challenge, which is at the root of the debacle: how to make mobile phones pay.

New figures even indicate a decline in desktop search traffic – where Google makes the bulk of its money – and a rise in search traffic from mobile phones. With their smaller screens, phones are harder to advertise on effectively and even more difficult still to use for the kind of services where Google can serve multiple adverts against a single query. There simply isn’t the space.

As Sameet Sinha, an analyst at B Riley, puts it, “Search is happening more and more outside of Google, meaning people are searching more through apps rather than through Google search. That could indicate a secular change, especially when it comes to ecommerce searches. The big fear has always been what if people decide just to go straight to Amazon and do their searches? And potentially that's what could be happening.”

Google argues that, thanks to its Android operating system and its market-leading position, nobody is better placed to make money from search, wherever it happens. And it’s true that Android allows the business to embed chances to monetise users at every opportunity. As Facebook has found out to its cost, however, it’s a tricky proposition, however it’s handled. Their already troubled shares fell yesterday too, indicating that markets lack confidence in tech stock whose outlook changes faster than in any other sector.

Still, it would be a mean-minded commentator who says Google’s figures today are the beginning of the end; and it would be even meaner to say the challenges those figures reveal are not ones that Google has more than seen coming. Its share prices have hit record highs recently, even though nobody is close to cracking the mobile problem yet – it would be brave, too, to suggest that Google has the answers that will see its shares rise rapidly in the future. This week could offer a foretaste of things to come, as the mobile phone revolution takes a real hold on the technology giants who built their fortunes on the desktop PC. Even so, the falls are as much a course correction, in part also down to Motorola's sagging earnings, as they are a sea change.

Boston Consulting Group analyst Colin Gillis sums up the situation: “We have been saying this thing was ripe for a pullback. It's not like they're Google not being Google, but you still have some major issues. Click prices declined for the fourth consecutive quarter after rising for eight consecutive quarters before then. That's a negative. This is the mobile problem.”